I expect the performance of gold, silver, the SPDR Gold Shares Trust (GLD), the iShares Silver Trust (SLV) and the Market Vectors Gold Miners ETF (GDX) will continue on their path lower from here on the Employment Situation Report. These securities would have been expected to move with conviction from here in one direction or another, but because of the day's positive economic data, the direction should be lower.
If we had gotten a bad enough report, the market would have hit the brakes long enough for investors to take a look around. What they would have noticed would have been a littering of mediocre economic metrics that had been previously overlooked. It would have been good news for the precious metals and relative securities, and it could have triggered a switch in capital flow or at least a stopping of outflows from precious metals. If the employment report was about the same as the last mediocre data point, I think it would have been enough to let the capital keep flowing in favor of riskier assets, which means more downside for gold, silver and the relative ETFs. However, the report was a blockbuster, and gold and silver interests should see significant further downside as a result.
I wrote Thursday that much of the latest economic data has offered recession-like symptoms that investors seem to be overlooking for the sake of forward expectations. Moreover, the data points in question would be hard to mistake for just a runny nose. I suspect I'll have to remind what seems like a market with a bit of a perception issue that fourth quarter GDP was just revised higher to just +0.1%. I'll need to test memories about the previous employment report as well, which actually showed deterioration in the unemployment rate. Plus, as I noted last month, the real unemployment rate is still much higher than the reported figure.
However, the jobs report was very positive in all top level aspects. On all marks, the data beat the expectations of economists. The unemployment rate improved to 7.7% from 7.9%. Nonfarm Payrolls rose by 236K, versus expectations for 171K, according to Bloomberg's survey of economists. Private nonfarm payrolls gained by 246K, versus expectations for 195K. The average workweek increased and beat expectations. Everything was great, and so the all clear signal once again sounds for stocks but the warning siren sounds for precious metals and relative securities.
Gold, silver and the relative ETFs listed herein have been on the losing end of capital flows in 2013. The mitigation of the fiscal cliff and the passing of the debt ceiling issue have effectively released previously obstructed risky assets to run. The capital spigots have been flowing, with some $8.8 billion moving into equity mutual funds on average over the last four weeks. Much of this capital has come out of money market funds, but it has also been coming out of precious metals and other "safe havens".
SPDR S&P 500 (SPY)
SPDR Gold Shares Trust
Market Vectors Gold Miners
iShares Silver Trust
Given the conviction of the data today, the immediate reaction of stocks is for them to move higher, so look for the SPDR Dow Jones Industrials (DIA) and the PowerShares QQQ (QQQ) to join the SPY in that regard. However, the metals securities should see significant further downside on the relatively strong jobs report. The market will continue to bet on and vet important data, until it finds its right way, but for now it has spoken against the metals again.